Wednesday, March 10, 2021

EFFECTS OF CONTRACTS

Introduction

By effects of contracts, we mean that the legal consequences of a validly formed contracts. The issue under consideration is dealt under Articles 1731-1805 of the civil code of Ethiopia. Once a valid contract is formed, observing the mandatory rules laid under the code for the formation of contracts such as consent, capacity, object and form, if any, it will have its own effect on the contracting parties and on the contracting parties exclusively. It is by and large said that contracts are laws for the parties who formed them. 

To make a serious promise certainly involves a moral duty to keep it. However, contract is binding not only morally but also legally. Any agreement which parties did not intend to create legally binding obligation is not a contact as in the sense of article 1679 of the civil code. Therefore, once a contract fulfills the requirement of Art 1678, it becomes a law. As Law is enforced by executive and interpreted by the judiciary the same will hold true for contract for the law want to protect and ensure their effectiveness.

The concept of effect of a contract can be understood in different ways. The first meaning of the term shows the time within which and when the contract is considered binding as between the parties while the second meaning of the term conveys an idea of the fulfillment or performance of the set of promise or promises prescribed in the contract.

The time limit within which the contract is binding as between the parties may be expressed in three ways. It may be stated as the contract is effective, and thus binding as between the parties from the moment of conclusion of the contract (as in the case of contract of sale), or a contract may be considered effective after some time have been lapsed from the day of conclusion (example a week after conclusion) or a contract may be effective after performance of some acts by the contracting parties.

The fulfillment or performance of the sets of promises stated in the contract, on the other hand, deals with the effectiveness of the contract in general.

In modern civil law legal system of civil juridical relationships, the widely accepted general principle is that one is free to enter into or refrain from entering into contracts. But once he has entered into it, it is enforceable under the law. Thus, the two major principles of contractual relationships are freedom of contract and sanctity of contract. As to what amounts to freedom of contract, we have discussed in the first module in relation to formation of contracts, which principally is discussed in detail as freedom of object and freedom of form. Sanctity of contract on the other hand indicates that parities are bound by their agreement. It is similar to that of normativity feature of the law. In other words, one who enters into a contract is legally bound by what he promised to do in respect of a promise done to him. This principle is inherited from the universally agreed and predominantly recognized principle of “pacta sunt servanda”, agreements are to be kept. This is to say that contracts legally formed become law as between the parties who sign them. This is a moral rule that “a man’s word is his bond”.  There is also an equivalent   Ethiopian proverb, failure to keep a word is worse than losing a descendantyetenagerut kemitefa yewoledut yitfa”.

However, contract is binding not only morally but also legally once the parties have show an unequivocal intention to be bind by the obligation they wish to undertake. Any agreement which parties did not intend to create legally binding obligation is not a contact (Art 1679). Therefore, once a contract fulfills the requirement of Art 1678, it becomes a law as between the parties who sign it.

Article 1731, the first provision to deal with the issue under consideration, reaffirms solemnly, on the legal plane, the moral rule that the man’s word is his bond (in Amharic, sew bekalu yitaseral), pacta sunt servanda: the provision of a contract lawfully formed shall be binding on the parties as though they were law.

Article 1731 – Principle

(1)   The provisions of a contract lawfully formed shall be binding on the parties as though they were law.

(2)   The contents of the contract shall be determined by the parties subject to the mandatory provisions of the law.

(3)   The provisions of this chapter shall apply to all contracts where such provisions are of a mandatory nature or their application has not been set aside by the parties.

The above stated provision makes a reference to the provisions of the code dealing with the formation of contracts by saying “contracts lawfully formed”. This is to say that contracts made giving due notice and respect to the provisions as to consent, object or cause and form is law for the parties. We can compare this provision with Article 1952 of the same code which lays down the rule for the relative effect of contracts.

Article 1952

(1)   Except in the cases provided by law, contracts shall produce their effects only as between the contracting parties.

The provision conveys a message and dictates that a contract shall produce its effects as between the parties who formed it. In other words, the contract is everything for the parties, but exclusively for the parties.

Generally, what Article 1731 states is that, a contract is a law as between the parties who formed it.

The principle of ‘pacta sunt servanda’ has been solemnly expressed in different international documents as well as national laws. However what is to be underlined here is that: in one hand, a contract lawfully formed may not be always be performed, that is the principle of “pacta sunt servanda” may not be always applicable and always be kept because some times, however, a contract is formed fulfilling all the requirements for its formulation may not be performed because of the happening of events which will hinder its performance beyond the ability and power of man (e.g. force majeure): On the other hand, the moral principle from which the principle of “pacta sunt servanda” was derived “ mans word is his bond “may not always be applicable, as far as the contracting parties are bound  not only in their words expressly stated in the contract but also to implied terms and incidental effects which of effective interpretation is to be left for the judges as in the sense of Article 1713 of the civil  code  of Ethiopia. Finally a contract shall be effective when the contracting parties are subjected to the imperative provisions of the law, while determining the object of the contract .since mandatory provisions of the law cannot be set aside by the contracting parties; they limit the parties’ freedom in contracting. The provisions on the defects of consent, object of the contract and form, if any, are mandatory and non fulfillment of such provisions while forming the contract shall give rise to the invalidation of the contract. 

Being the law for parties, Article 1732(2), states that the contents of the contract shall be determined by the parties subject to the mandatory provisions of the law. In other words legal provisions can only be made to prevail over the express terms of the contract where they are of mandatory nature. This means they have to be interpreted and analyzed as such before any attempt at application by the court.

Here lies an echo of Article 1711 on the determination of the object of the contract: only mandatory, i.e. imperative provisions of the law can be analyzed as being the restrictions or prohibitions put by law to the object of the contract. In other words, where the mandatory nature of the legal rule is not considered or demonstrated contractual freedom should be the norm enforced by the judge.

Article 1731(3) provides that the rules analyzed in the title dealing with the ‘effects of contracts’ will be applicable either  because of the mandatory nature of those provisions or because of the parties did not decide to set aside these provisions. Regard shall be had also to the special provisions of the code dealing with special types of contracts, such as contract of sale, or contract of lease, etc. The mandatory nature of the rule is respected and identified not only when the text of the code expressly says so, but also when it’s imperative character can be determined from the vocabulary of the word employed: such will be the case when the text uses the word “shall”, provided that it is not mistranslation. Where the provisions are not mandatory, they will be deemed suppletory or permissive, until they are set aside by the express agreement of the parties.

The binding nature and force of a contract is also illustrated by the right of general attachment automatically open by Article 1988 of the civil code, to any creditor over the entire estate of his debtor, from the simple fact that he has a claim against this debtor. The binding force of contract is greatly supported by this legal surety.

In conclusion, one may say that the general rule or principle set out under Article 1731 of the civil code is nothing but on the legal plane, the illustration of the moral rule that dictates a man to respect his promises as a man’s word is his bond, which can be expressed in a Latin maxim as “pacta sunt servanda”.

In contract law of Ethiopia, the effects of contracts is generally dealt with the provisions expressed in the code (Article 1732and following provisions) with respect to interpretation of the contract, performance, variation and non performance of the contracts. This is to say that the due effects of the contract are ascertained by interpretation, fulfilled by performance, changed exceptionally by judicial variation and sanctioned by the rules of non performance which may put on the non performing party a penalty as the case may be.

 

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